Interest rates – What’s happening?

What is going on with interest rates (especially fixed interest rates) at the moment is really interesting.

The variable interest rate (or cash rate) is only impacted by the RBA. They decide to either put the rates up or down and at the moment, the variable interest rate is on its way down. This is good news for investors as it puts more cash in our back pockets, effectively giving us a ‘pay rise’ each time interest rates fall.

Fixed interest rates on the other hand are impacted in a different way. The RBA has no control over fixed rates. What controls long term fixed rates is the Bond Market. Simply put, bonds are purchased by investors looking for low risk long term investments. At the moment, bond yields are at their lowest since federation, down from 3.6% to 2.9%.

What this means for us as investors is that long term fixed rates are coming down. The three year fixed interest rates are attracting interest by investors as they are generally half a percent lower than the standard variable rates of most lenders. Fixed rates are expected to reduce further so watch this space before choosing to fix.

As a guide, when fixed interest rates fall below 6%, consider locking in mortgages on properties you intend to hold for the long term.